Exam 9: Property, Plant, and Equipment, Intangible Assets and Natural Resources

Machinery is purchased on 15 May 2009 for $50,000 with a $5,000 salvage value and a five year life. The half year convention is followed. What method of depreciation will give the highest amount of depreciation expense in year 2?

A revenue expenditure is an operating expense.

Computation of Goodwill The profit of Greystone, Inc., during the last several years has averaged $765,000 annually. The company is now being offered for sale as a going concern. The value of Greystone's net identifiable assets (total assets minus all liabilities) at the present time is $4,675,000. One of several corporations interested in buying Greystone, offers to pay an amount equal to the value of the net identifiable assets and to assume all liabilities. In addition, this prospective buyer is willing to pay for goodwill an amount equal to net earnings in excess of 10% on net assets, expected to continue four years. You are to use the above information as a basis for computing the price that the investing corporation will offer for Greystone,, Inc. $_______________

Yale Company purchased equipment having an invoice price of $21,500. The terms of sale were 2/10, n/30, and Yale paid within the discount period. In addition, Yale paid a $320 delivery charge, $350 installation charge, and $1,183 sales tax. The amount recorded as the cost of this equipment is:

Which of the following should not be treated as a revenue expenditure?

Revenue expenditures are a part of selling and administrative expenses.

On 2 April 2013, Victor, Inc. acquired a new piece of filtering equipment. The cost of the equipment was $160,000 with a residual value of $20,000 at the end of its estimated useful lifetime of 4 years. -Refer to the above information. Assume that in its financial statements, Victor uses straight-line depreciation and the half-year convention. Depreciation recognized on this equipment in 2013 and 2014 will be:

The following expenditures are related to land, land improvements and buildings which were acquired on 1 November 2009. Cost of real estate acquired for a new manufacturing plant \ 365,000 The land is appraised for \ 262,800 and the building for \ 102,200. Real estate taxes paid by the purchaser \ 20,000 Cost of removing a barn \ 8,500 Architect's fees for updating building \ 6,750 Attorney's fees for closing sale \ 12,500 Grading land \ 3,500 Paving parking lot \ 7,000 Planting trees and shrubs \ 9,250 cost of repairs to building due to storm during construction \ 1,300 Lights placed on driveway 4750 Fee to real estate broker \ 2,500 Required: Determine the cost of the land, the building and the improvements (Round to the nearest dollar) Prepare journal entries on 31 December 2009 for depreciation assuming the building will have a useful life of 20 years and no residual value. Use double declining balance method and the half-year convention. Depreciate the land improvements using straight-line method, a 5 year life, to the nearest month with zero residual value (to the nearest dollar).

The systematic write-off of intangible assets to expense is called depletion.

On 30 April 2013, Tilton Products purchased machinery for $88,000. The useful life of this machinery is estimated at 8 years, with an $8,000 residual value. -Refer to the above data. Assume that in its financial statements, Tilton Products uses straight-line depreciation and rounds depreciation for fractional years to the nearest month. Depreciation expense recognized on this machinery in 2013 and 2014 will be:

On 5 May 2013, Lloyd purchased a machine for $84,000. The estimated life of the machine was 10 years, with an estimated residual value of $10,000. The service life in terms of "output" is estimated at 8,000 hours of operation. -Assume Lloyd uses the units-of-output method and that the machine was in operation for 1,000 hours in 2013 and 1,800 hours in 2014. The book value of the machine at 31 December 2010 is:

Responsibility for selection of the depreciation methods used in financial reporting rests with:

The half-year convention allows us to take six months depreciation during the first year of an asset's life even if the asset was purchased on 25th January.

All of the following may be considered intangible assets except:

Early in the current year, Tokay Co. purchased the Silverton Mine at a cost of $200,000,000. The mine was estimated to contain 200,000 tons of ore and to have a residual value of $50,000,000 after mining operations are completed. During the year, 105,000 tons of ore were removed from the mine. At year-end, the book value of the mine (cost minus accumulated depletion) is:

The book value of an asset in the property, plant and equipment category is:

Determining cost of PPE assets New equipment was purchased by Hunter Corporation at a list price of $94,000, with credit terms of 2/10, n/30. Payment was made within the discount period and included $7,800 sales tax in addition to the net purchase price. The company also paid delivery charges of $940 and labor costs of $1,380 for installing the new equipment at the appropriate location. During installation, an inexperienced employee punctured several containers with a forklift, causing damage to the equipment. Cost to repair the damage was $1,960. What is the total cost of Hunter's equipment?

Louisville Farms, a breeder of racehorses, paid $432,000 cash for a prize-winning stallion on 1 January 2007. The stallion is depreciated on a straight-line basis, with depreciation for partial years rounded to the nearest month. Estimated useful life was nine years, with no residual value. After owning the animal for six years and five months, Louisville Farms sold the stallion on 31 May 2013, for cash of $85,000. Depreciation had last been recorded on 31 December, 2012. -Compute to the nearest full month depreciation for the fractional period from 1 January 2013 to 31 May of 2013. $______________

Which of the following is a capital expenditure?

The application of the matching principle to depreciation of property, plant and equipment can best be described as: